Discussion Papers

Karl-Heinz Neumann

Structural models for NBN deployment

No. 342 / September 2010

Summary

Governments around the world have announced plans for ultra-fast National Broadband Networks (NBN). While these plans typically involve the use of fibre to deploy new access networks, deployment patterns and architectures are of considerable diversity. Operators, in particular incumbent telcos, seem to be less enthusiastic about large scale fibre investment. When they invest in fibre access networks, they seem to be more driven by the challenge of cable operators and fibre projects of alternative operators than by their own favourable business expectations regarding NBN.

The reluctance of many operators to make large scale investments into NGA networks follows from uncertainties about the profitability of fibre access networks at the current level of willingness to pay of users for advanced communications networks. Furthermore, pervasive capital market imperfections make it difficult even for large incumbent operators to mobilize the considerable financial resources necessary for a large scale NGA roll-out. The time horizon of the capital market and the management of publicly listed telcos does not seem to support large scale new infrastructure investment in a competitive market.

Many governments seem to be convinced that the social value of a larger scale deployment of fibre access networks will exceed the private value of users and operators which define the market incentives to invest in NGA networks. That is why they try to accelerate the NGA deployment process by formulating targets, measures to reduce deployment costs, providing public funds and even by taking over the operator responsibility.

While Governments on a worldwide basis withdraw themselves from telecommunications through a policy of privatization and liberalization over the last two decades, the deployment of Next Generation Access networks has initiated a process of re-assessing and re-formulating the role of the state in and for the industry. The Australian Government took the most radical approach and transformation of its role: By taking over the role of the investor, financier and network operator for the fibre network infrastructure, the Australian State goes back to the organizational model of the industry which prevailed in many countries until one or two decades. That traditional organizational model of the industry has also been the one under which the currently dominating copper network has been deployed and rolled-out on a nationwide basis in most countries. A new state-owned network company will focus on and operate as a wholesale company which is not vertically integrated into the retail business which has been the case in the former state-owned telecommunications authority structure. The model is monopolizing the basic infrastructure level and is relying on private sector initiatives and competition on the upper level of the network, the service and the content layer.

Before this background this paper is organized as follows: Section 1 deals with the basic economic characteristics of NGA and the profitability and replicability of NGA networks in particular. Section 2 gives a flavour on the European approach towards NGA with particular reference to measures taken or planned at the European level. Section 3 puts the Australian NBN approach into a worldwide perspective. The paper concludes with a few and tentative remarks on demand as a success factor for ultra-fast broadband development.

Discussion Paper is available for download.

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